What Is Economics ?

 What is Economics?

Part 1: Definition of Economics

Economics is the social science that studies the production, distribution and consumption of goods and services, as well as the transfer of wealth.

The term economics comes from the Greek, “oikos” meaning house and “nomos” meaning law.

Three economists of different times made their own definition of economics.

• In a book titled “Wealth of Nations”, published in 1776 by Adam Smith (1723-1790), he stated that “Economics is a science of wealth”.
• Alfred Marshall (1842-1924) said: "Economics is a study of mankind in the ordinary business of life; it explains that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of well-being"
• Finally, Lionel Robbins, born in 1898 and dead in 1984 claimed that: “Economics is the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”

Part 2: Macroeconomics & Microeconomics

There are two main types of economics: macroeconomics and microeconomics.

• Macroeconomics is the branch of economics about particular circumstances that affects an entire economy such as inflation, unemployment, market failure, economic growth, and many others.

Macroeconomics has two goals. The first one is to improve living standards in long run so that children would live better than their elders. The idea of increasing living standards comes from the great economist Adam Smith and his concept of the invisible hand. Adam Smith believed that letting individuals acting in their own self-interest can benefit the society as a whole.

He also believed that governments should not intervene in the economy and that decisions should be determined by supply and demand. This is called market economy, in conflict with the idea of command economy which is about letting government make every decision about production and consumption.

The second goal of macroeconomics is to maintain stability in the short run, which leads us directly to John Maynard Keynes (1883-1946) who thought on the contrary that governments should interfere to promote the common good.

• Microeconomics is the study of how individuals, households and firms make decisions about the management of their resources and their impacts. Microeconomics is about optimizing individuals. Everybody is optimizing individuals insofar as everybody seeks to satisfy its own preferences. By pursuing their self-interest, they serve the group as a whole (invisible hand). Nevertheless, there is cases where individuals are all acting independently, slowing down each other -this is called the tragedy of commons-.

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